Schizophrenia and other psychotic disorders are serious and debilitating mental illnesses that incur substantial suffering for patients and major challenges to our health care and legal systems. The prodrome is the period prior to onset of psychosis when functional decline and clinical symptoms gradually emerge. The presence of a clinical high-risk (CHR) syndrome in young adults is associated with heightened risk (25-35%) for the later development of psychosis, and for those who do not necessarily go on to develop a psychotic illness, research has suggested that the majority continue to have fluctuating subthreshold symptoms and poor social and role functioning. There are no specific treatments to help with these functional difficulties. However, recent findings suggest that in people with schizophrenia, Cognitive Behavioral and Social Skills Training (CBSST) leads to significantly greater increase in the frequency of social functioning activities compared to treatment as usual or goal- focused supportive therapy, and preliminary data suggest CBSST is a feasible treatment for CHR. This application is a competitive application for a three-site, longitudinal study aimed at testing the effectiveness and feasibility as well as mediators and mechanisms of action of a manualized CBSST intervention that will target functional difficulties associated with clinical risk states for psychosis. The goals are 1) to examine whether CBSST compared to a placebo intervention (psychoeducation) matched for group involvement and therapist time improves functioning in youth at CHR and 2) to determine whether reduction in defeatist beliefs and improvement in social competence mediate change in psychosocial functioning in CHR youth in the CBSST. In this single-blind randomized 2-arm trial participants will be randomized to one of two treatments: CBSST, an 18-week group comprised of three modules; 1) Cognitive Skills; 2) Social Skills; and 3) Problem Solving, or a psychoeducation support group that does not teach active cognitive behavioral therapy or social skills training. Over a five-year period, te multi-site collaboration will follow large CHR sample that will undergo comprehensive assessments of psychosocial and behavioral changes, to examine changes in social and role functioning, as well as symptom changes from baseline to the end of treatment, and to 6 month follow-up. This approach will demonstrate the feasibility of a treatment for which it is easy to train therapists and which can readily be disseminated to regular clinical community practice. In addition, it will provide insights into likely approaches to halting or mitigating the pathological process and advance our understanding of risk prediction; both critical steps in prevention.